Why do franchisees fail? A quick Google search reveals dozens of opinions, mostly spouted by so-called franchise experts, but almost no hard facts. We were surprised. There is plenty of franchise research out there. But then we realised we were asking the wrong question.

The reason it’s the wrong question is that pretty much all the research out there has been done or sponsored by people with a vested interest in franchising – franchise associations, franchise departments of universities, and franchise consultants.

And what person with a vested interest in franchising wants the f word – fail – to be associated with franchising?

So we came up with a better question: Why do franchisees buy franchises?

We thought that might be more revealing. Who buys a franchise in order to fail? Yet franchisees sometimes do. So in those cases there must have been a gap between those franchisees’ expectations of what they were buying and what they actually bought.

So why do franchisees buy franchises? The consensus of the research seems to be summed up by Lorelle Frazer, Scott Weaven and Debra Grace of Griffith University in their research paper Survival of the fittest: The performance of franchised versus independent small business during economic uncertainty and recovery.

“Franchisees and independent operators have distinctly different motivations for entering business and possess different psychological traits. Franchisees seek the security of a franchise network and are risk avoiders, whereas independents are confident, proactive risk takers.”

In other words, franchisees tend to be farmers, while independent business people tend to be hunters.

Being a farmer is fine when your business is commercial cleaning or lawn mowing, for example, and involves serving the needs of a customer base supplied by your franchisor. Arguably it’s also fine if you’re a McDonald’s franchisee, for example, and your revenue is largely driven by your location and the massive brand awareness and marketing of your franchisor.  

But what if you don’t have those advantages and the success of your franchised business will be largely driven by your own efforts? What if your franchisor is bringing in the leads but it’s up to you to get out there and close the sales?

Where does your risk-avoidance and dependence on the franchisor get you then? What good is being a farmer? Could this be a key reason for failure in entrepreneurial-type franchises?

The Griffith University researchers clearly thought so.

“In other words, what they [franchisees] expected would happen in their franchising business is not what they are experiencing... It may be that the very characteristics of the franchising business model that are “sold” to franchisees (such as risk reduction and established brand) are causing franchisees to underestimate the role they must play for successful franchising outcomes to eventuate.”

To make it worse, the research showed that this seems to colour franchisees’ attitude to customers, causing them to treat customers as if they belonged to the franchisor and not to them. Of course, this attitude isn’t helped by the fact that most franchise agreements specify that the customer database is and will remain the property of the franchisor. That’s there to support the non-competition provisions and protect the franchisor in the event of the agreement being terminated – but it must affect the way franchisees think about “their” customers.

What can franchisors in more entrepreneurial systems do to solve this problem and increase the odds of their franchisees’ success?

Some American franchising research may have shed some light on a possible solution:

“Some franchising organizations have the latitude for entrepreneurship, and they are plagued with the same problems all small businesses face in the wake of competition and troubled economies... Like many small and large companies, franchises need effective leadership at every level for success to exist and perpetuate.”

Source: Franchise Entrepreneurial Leadership: The Relationship Between Levels of Success in a National Logistics Franchise System and Its Dominant Leadership Style, John C. Cary, St. John Fisher College

In our experience as franchisors and franchise consultants, there are five steps which franchisors can take to ensure the leadership needs of their franchisees’ businesses are effectively matched to the competencies of their franchisees. They are:

1.         Evaluation

Who are the most successful franchisees in your system and what qualities do they have that the least successful franchisees don’t? If yours is an established franchise with good reporting and benchmarking systems, this is easy to figure out. But if you’re just starting out in franchising, it doesn’t have to be a trial-and-error thing. What made you successful in your business? What qualities have made your competitors successful? Are there offshore franchises or comparable industries you can benchmark against?

2.         Recruitment and selection

Only once you’ve identified your target market – that is, decided what your ideal franchisee looks like at every stage of a franchised business’s development – should you prepare your recruitment and selection strategy. How will you reach the kind of people who are most likely to be your successful franchisees? How will you make it clear to them what skills they will need to be successful as a franchisee? What process will you use to screen them before you even get around to meeting them?

3.         Expectations

As we’ve seen earlier, the natural expectation of franchisees is that they’ll be looked after by the franchisor. But the definition of “looked after” varies according to the franchise type. Even in less entrepreneurial franchises, franchisors are becoming more leery of doing too much for their franchisees in case they are suddenly saddled with joint liability as McDonald’s was by the National Labor Relations Board in the United States. And of course in more entrepreneurial franchises there’s a limit to how much franchisors can “look after” their franchisees if those franchisees just aren’t confident and proactive. The solution is not only to recruit the right franchisees, but also to spell out your expectations even before they become franchisees. Once they’re on board, you need to consistently measure their performance against expectations to ensure they’re on track and stay on track.

4.         Resources

There’s plenty of evidence to suggest that as long as you recruit the right franchisees and set clear expectations of their performance, you can use tools, training and support to make them even more effective hunters. But nobody’s perfect and smart franchisors don’t hesitate to bring in outside help where there may be gaps in their franchisees’ capabilities. For example, a client of mine found that most of his franchisees lacked the specialised leadership skills required to manage their teams of commission salespeople. For years he had tried to train the franchisees up in those skills, but with little success. So I suggested he bring a national sales manager in to his own team to work with and guide the franchisees’ sales teams. Network sales leapt by 500% over five years.

5.         Evolution

“Franchising is just a way of doing business; it's not a script for success,” says Robert Purvin, a former franchise attorney, now chairman and CEO of the American Association of Franchisees and Dealers.  “The world is constantly evolving, and all of those ‘proven’ systems have to evolve, too. Any company standing still and focused on its 'proven method' is a company that will be a dinosaur. Buying a company that holds back from change is not a path to success.”

Article by Robin La Pere, No Ordinary Business and Franchise Consultants

For expert advice and support in all aspects of franchise leadership, including franchisee recruitment, selection and development, contact me at robin@noordinary.co.nz.

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This article was written by Robin

La Pere of No Ordinary Franchise Consultants.

Robin has long experience in franchising and franchising-related industries. He has been a franchise manager and still owns his own franchise, which is now run by his business partner.

Robin maintains that to be an effective franchise consultant, as he is now, it helps to have real hands-on experience in franchising as well as proven strategy, analysis, people, system and coaching skills.

Robin's franchise experience and background in corporate management has given him a broad perspective on what it takes to lead a successful franchise.

Robin is based in Auckland, New Zealand, but works with clients all over the world. To arrange for a free Initial Consultation, contact him at robin@noordinary.co.nz or use the Contact Form.


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